Are your casual employees actually casual: Examining a new Federal Court decision and what it means for Australia’s casual workforce?

Many employers engage casual employees who are often longstanding members of their workforce and/or work a regular pattern of hours. However, are these employees really engaged on a casual basis? This has been a vexed issue for some time and for legal questions such as access to the unfair dismissal jurisdiction and long service leave entitlements it has been recognised that casual employees who work regular and systematic hours, are to be treated in the same way as permanent employees. However, it has always been accepted that if casuals are paid a casual loading, they are not entitled to paid leave.

This specific issue was considered last year in WorkPac Pty Ltd v Skene [2018] FCAFC (“Skene”) (refer to our previous article on this case). The decision held that an employee who was described as a casual but worked a regular roster set a year in advance was in fact a permanent employee. Consequently, the Court ordered in Skene that the employee was entitled to annual leave under both the National Employment Standards and the enterprise agreement which applied to his employment. In Skene, it was found that a true casual employee must have no firm advance commitment as to the duration of their employment or the days worked. However, the decision left open the ability for an employer to ‘set off’ the liability for leave or other benefits against the casual loading where such a loading is clearly expressed and the loading was received by the employee.

Interestingly, WorkPac chose not to appeal this decision but instead commenced proceedings relating to a claim by another employee – WorkPac Pty Ltd v Rossato [2020] FCAFC 84 (“Rossato”).

In the proceedings, WorkPac sought declarations that an employee, Mr Robert Rossato was a casual employee and therefore not entitled to be paid annual, personal and compassionate leave and public holiday entitlements. Specifically, WorkPac attempted to distinguish Rossato’s circumstances from Skene by demonstrating that there was no firm advance commitment as to the duration of the employee’s employment or the days/hours the employee will work. In addition, and in the alternative, WorkPac argued that even if Rossato was deemed to be a permanent employee, WorkPac could ‘set off’ the casual loading Rossato received. In other words, if Rossato was in fact entitled to the benefits received by permanent employees, he had already been paid for those benefits.

By way of background, Mr Rossato was engaged by WorkPac under 6 separate casual contracts of employment (at various locations) over the course of 3.5 years. The contracts of employment identified Mr Rossato as a casual employee and referred to the payment of a casual loading being incorporated into Mr Rossato’s flat rate of pay. The contract stipulated that the casual loading of 25% was in lieu of entitlements to annual leave, personal leave under the Fair Work Act 2009 (Cth) or its specific enterprise agreement.

The Full Federal Court unanimously found Rossato, like Skene, should have been treated as a permanent employee. The Full Bench adopted and endorsed the principles of the Skene decision. It was held that the parties’ description of the engagement as casual in a written contract is not determinative of the question of true legal characterisation, and consideration of the features of the relationship is required. For instance: a casual employee should have no firm advance commitment from the employer to continuing and indefinite work, the employee should have irregular work patterns, uncertainty, intermittency of work and unpredictability.

In addition, all Judges noted that post-contractual conduct could vary the nature of the engagement. For instance, the engagement might transition from casual to permanent at some point in time, based on the subsequent conduct of the parties.

As a result of finding Mr Rossato was in fact a permanent employee, WorkPac was required to backpay Mr Rossato unpaid annual leave, personal leave, compassionate leave and public holiday entitlements, notwithstanding that Mr Rossato was paid a casual loading in lieu of such entitlements.

In response, WorkPac pressed their argument that it should be able to set-off the casual loading it had paid to Mr Rossato against the unpaid entitlements. The Full Federal Court rejected this argument and found that the contracts were not sufficiently worded to give an option for contractual set-off. In addition, it was noted that paying a casual loading was not a substitute for the absence of a right to enjoy the entitlement to paid leave.

In addition, WorkPac sought to recover the casual loading it had paid to Mr Rossato on the basis that the loading was paid in error, if the Court ultimately found Mr Rossato to be a permanent employee. Again, this was also rejected. Justices Bromberg and Wheelahan both found that WorkPac agreed to pay the casual loading in its contract and accordingly “assumed the risk” that the flat hourly rate satisfied its statutory obligations.

Going forward

Ultimately, the Full Federal Court decision clarifies the meaning of a “casual” employee. Essentially, all “casual” employees who have regular and systematic work and an expectation of ongoing work, will be entitled to make a back payment claim for unpaid leave. This will have implications for businesses around the country, especially considering around 1.6 million Australians, prior to COVID-19, were employed on a “casual” basis. Employers would not be able to set-off the amount of leave owing against the casual loading already paid and may also not be able to recover the casual loading paid to the employee.

With businesses attempting to recover from the impacts of COVID-19, this decision has not been welcomed by employers and in particular, a number of industry groups are lobbying the Federal Government to introduce new legislation to address the uncertainty caused by the Skene and Rossato decisions.

Lesson for employers

In the meantime, until there is more clarity on the issue, it is crucial for businesses to review how their casual employees are engaged and in particular, casual employees that are long term and/or work a regular systematic roster. Employers should consider the real substance of an employee’s work rather than the label attached to it. It is important that employers now offer permanent employment to all their long-term casuals. This may not protect the employer from a back-pay claim but will protect the employer from the incurrence of a continuing future liability.

Additionally, it is important for employers to:

• Ensure that any casual employees are in fact casual. This means the employee is employed on an ad hoc as needs basis. The employee should not have recurring predictable work, so as to give rise to a reasonable expectation of ongoing work;
• Review your workforce (including labour hire workers) to assess whether particular employees should no longer be categorized as casual employees. In this regard, convert long term casual employees to either permanent full-time or permanent part time employment; and
• Review contracts of employment to ensure they are carefully drafted and contain appropriate set off provisions, allowing loadings to be set-off against unpaid leave entitlements.

Employers must however remember that they cannot force employees to convert to permanent status. In addition, casual employees have the benefit of the General Protection provisions of the Fair Work Act 2009 (Cth), and as such any actions taken by an employer that may affect them must be done with care.

Finally, we remind our readers that all modern awards include a casual conversion clause which allows employees to request that their employment be converted to full-time or part-time employment in circumstances where the casual employee has in the preceding period of 12 months worked a pattern of hours on an ongoing basis and without significant adjustment. This request may only be refused on reasonable grounds in accordance with the modern award provisions.

We recommend that if this is an issue for your business, you seek appropriate legal advice.

If you wish to discuss any aspect of this article or require specialist advice or assistance in relation to your employment relations framework, please do not hesitate to contact us.

This alert is otherwise not intended to constitute, and should not be treated as, legal advice.